Extant literature revealed that international trade plays a key role to address the economic phenomena and can help to earn foreign exchange. Despite the accruable benefits from international trade and the country's huge oil export that account for about 90% of its foreign exchange earnings, Nigeria's trade balance and exchange rate remain unfavourable. The persistent rise in Nigeria's exchange rate and unfavourable trade balance in recent time warrants an empirical probe. This study therefore examines the effect of exchange rate, domestic income, foreign income, consumption expenditure, money supply and interest rate on trade balance using a secondary time series data covering a period of thirty years from 1991-2020. The study employed a regression technique of the Ordinary Least Square (OLS). All data used were secondary data obtained from the statistical bulletin of Central Bank of Nigeria (CBN) and National Bureau of Statistics (NBS) annual publications. After determining stationarity of the study variables using the ADF Statistic, it was discovered that the variables were all integrated at level, first and second difference, and found out to be stationary at their first difference. The study also using Johansen Cointegration Test, found that there is a long run relationship between the variables. Hence, the implication of this result is that there is a long run relationship between trade balance and other variables used in the model. From the result of the OLS, it is observed that exchange rate, domestic income, foreign income and money supply have a positive and significant impact on trade balance in Nigeria. The study recommends that the government should fixed or peg on the exchange rate through the central bank. This will enable the government to buy and sell its own currency against the currency to which it is pegged. The government should strive to reduce inflation to make exports more competitive. The government should also enhance supply-side policies to increase long-term competitiveness.
Exchange rate, Trade Balance, Domestic Income, Foreign Income and Money Supply
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